<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): August 27, 1996
RATIONAL SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 0-12167 54-1217099
(State or Other Jurisdiction of (Commission File (IRS Employer Identification
Incorporation) Number) Number)
2800 San Tomas Expressway, Santa Clara, CA 95051
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (408) 496-3600
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INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. MATTERS SUBMITTED TO A VOTE OF SECURITY HOLDERS AT THE ANNUAL MEETING
On Tuesday, August 27, 1996, the Company held its annual meeting of
stockholders. The following items were submitted to a vote of the stockholders:
1. To elect two Class 1 members of the Board of Directors for a
three-year term expiring in 1999 or until their successors are elected and
qualified.
<TABLE>
<CAPTION>
Election of Director Votes For Votes Withheld
- -------------------- --------- --------------
<S> <C> <C>
Michael T. Devlin 15,704,872 135,371
Leslie G. Denend 15,704,167 136,076
</TABLE>
As a result, Messrs. Devlin and Denend were elected directors of the
Company.
2. To approve an amendment to the Company's Certificate of
Incorporation increasing the number of authorized Common Stock from 25,000,000
to 75,000,000 shares.
<TABLE>
<CAPTION>
Votes
-----
<S> <C>
For 11,012,135
Against 4,666,333
Abstain 17,706
Broker Non-Vote 144,069
</TABLE>
This proposal was approved.
3. To approve an amendment to the 1994 Stock Option Plan reserving an
additional 1,000,000 shares of the Company's Common Stock for issuance
thereunder.
<TABLE>
<CAPTION>
Votes
-----
<S> <C>
For 9,822,336
Against 4,106,082
Abstain 32,106
Broker Non-Vote 1,879,719
</TABLE>
The proposal was approved.
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4. To approve an amendment to the 1994 Stock Option Plan increasing the
maximum number of shares of the Company's Common Stock for which options could
be granted to employees in any calendar year from 83,333 to 100,000.
<TABLE>
<CAPTION>
Votes
-----
<S> <C>
For 11,747,809
Against 3,880,670
Abstain 47,272
Broker Non-Vote 164,492
</TABLE>
The proposal was approved.
5. To approve an amendment to the 1994 Employee Stock Purchase Plan
reserving an additional 200,000 shares of the Company's Common Stock for
issuance thereunder.
Votes
For 13,826,580
Against 259,726
Abstain 25,095
Broker Non-Vote 1,728,842
The proposal was approved.
6. To approve an amendment to the Directors' Stock Option Plan
increasing the size of the annual option grant and accelerating the date of
certain initial option grants. Specifically, the amendment effects the following
changes:
1) Presently, the Directors' Stock Option Plan provides for an annual
grant of an option to purchase the greater of (i) 8,333 shares of
the Company's Common Stock or (ii) the number of shares of the
Company's Common Stock representing the difference between 33,333
and the number of option shares of the Company's Common Stock
already granted to the director by the Company. The proposed
amendment would increase the size of the annual option grant to the
greater of (i) 8,500 shares of the Company's Common Stock or (ii)
the number of shares of the Company's Common Stock representing the
difference between 34,000 and the number of option shares of the
Company's Common Stock already granted to the director by the
Company.
2) The amendment to the Directors' Stock Option Plan will also
accelerate the date of certain initial options granted to eligible
Directors. First, the proposed amendment would
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accelerate the date on which options are granted to new eligible
Directors from the date of the Company's annual meeting to the date
on which the director becomes an eligible Director. Second, the
proposed amendment would accelerate the date of option grants to
eligible Directors who serve on the Board in a representative
capacity (pursuant to which they were prohibited from receiving
options under the Directors' Stock Option Plan by the entity they
were representing) and then begin serving in an individual capacity.
Presently, the Directors' Stock Option Plan provides for such
options to be granted on the date of the Company's annual meeting.
The proposed amendment would accelerate the date such options are
granted to the date on which the eligible Director commences serving
in an individual capacity.
<TABLE>
<CAPTION>
Votes
-----
<S> <C>
For 12,114,910
Against 2,936,702
Abstain 83,680
Broker Non-Vote 704,951
</TABLE>
The proposal was approved.
7. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors to examine the financial statements of the Company for
fiscal year 1997.
<TABLE>
<CAPTION>
Votes
-----
<S> <C>
For 15,819,848
Against 5,753
Abstain 14,642
Broker Non-Vote 0
</TABLE>
The proposal was approved.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements.
Inapplicable.
b. Pro Forma Financial Information.
Inapplicable.
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c. Exhibits
The Rational Software Corporation Stock Option Plan for Directors, the
Rational Software Corporation 1994 Employee Stock Purchase Plan, and the
Rational Software Corporation 1994 Stock Option Plan (the "Plans") are included
as Exhibits 1, 2, and 3, respectively, to this Report. The Plans reflect the
revisions and share increases which were approved by the Company's stockholders
at the annual meeting on August 27, 1996. The Plans also reflect the two-for-one
stock split effected by the Company by means of a stock dividend which was paid
on September 10, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: October 2, 1996
RATIONAL SOFTWARE CORPORATION
By: /s/ Robert T. Bond
----------------------------------------------
Robert T. Bond
Senior Vice President, Chief Operating Officer,
Chief Financial Officer, and Secretary
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EXHIBIT LIST
Exhibit Number Exhibit
1 Rational Software Corporation Stock Option Plan for
Directors
2 Rational Software Corporation 1994 Employee Stock
Purchase Plan
3 Rational Software Corporation 1994 Stock Option Plan
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EXHIBIT 1
RATIONAL SOFTWARE CORPORATION
STOCK OPTION PLAN FOR DIRECTORS
Rational Software Corporation (the "Company") sets forth herein the
terms of this Stock Option Plan for Directors (the "Plan") as follows:
1. PURPOSE
The Plan is intended to advance the interests of the Company and its
subsidiaries by providing eligible individuals (as designated pursuant to
Section 3 below) with an opportunity to acquire or increase a proprietary
interest in the Company, which thereby will create a stronger incentive to
increase their efforts for the growth and success of the Company and its
subsidiaries, will encourage such eligible individuals to remain in the service
of the Company and will reward them for their efforts on the Company's behalf.
Each stock option granted under the Plan (an "Option") is not intended to be an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, or the corresponding provision of any subsequently-enacted
tax statute, as amended from time to time (the "Code").
2. STOCK
The stock that may be issued pursuant to Options granted under the Plan
shall be shares of Common Stock, par value $.01 per share, of the Company (the
"Stock"), which shares may be treasury shares or authorized but unissued shares.
The number of shares of Stock that may be issued pursuant to Options granted
under the Plan shall not exceed in the aggregate 566,664 shares, which number of
shares is subject to adjustment as provided in Section 14 below. If any Option
is cancelled by mutual consent or expires or terminates for any reason before
having been exercised in full, the unpurchased
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shares that were subject to the Option shall, unless the Plan has then
terminated, be available for other Options under the Plan.
3. ELIGIBILITY
Options shall be granted under the Plan to those individuals ("Eligible
Directors") who from time to time are serving as members of the board of
directors of the Company and who are not officers or employees of the Company or
one or more of its subsidiaries and who have not given the Company written
notice that they decline to receive a grant of Options hereunder. No person
shall have any discretion to select which Eligible Directors shall be granted
options or to determine the number of shares covered by options granted to
Eligible Directors.
An individual may hold more than one Option, subject to such
restrictions as are provided herein.
4. EFFECTIVE DATE AND TERM OF THE PLAN
(a) Effective Date. The Plan shall be effective as of August 23, 1991
subject to approval of the Plan on or before December 31, 1992 by an affirmative
majority vote of the votes cast at a duly held meeting of the shareholders of
the Company at which a quorum representing a majority of all outstanding voting
stock is, either in person or by proxy, present and voting on the amendment;
provided, however, that upon approval of the Plan by the shareholders of the
Company as set forth above, all Options granted under the Plan on or after the
effective date shall be fully effective as if the shareholders of the Company
had approved the Plan on the effective date. If the shareholders fail to approve
the Plan on or before December 31, 1992, any Options granted hereunder shall be
null and void and of no effect.
(b) Term. The Plan shall terminate on August 23, 2001.
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5. OPTION GRANTS
(a) Any Eligible Director serving on the Company's Board of Directors
on July 25, 1995 will, on such date, have his 1994 option grant rescinded, and
receive a replacement option grant with the same exercise price for that number
of shares equal to the greater of (a) 17,000 or (b) the difference between
68,000 and the number of option shares already granted to the director by the
Company at any time in the past (exclusive of options being rescinded);
(b) Any new Eligible Director joining the Board of Directors will
receive an option grant, on the date such person first becomes an Eligible
Director, for that number of shares equal to the greater of (a) 17,000 or (b)
the difference between 68,000 and the number of option shares already granted to
such director by the Company at any time in the past, if any;
(c) Any new Eligible Director joining the board who declines to accept
the option grant provided for by Section 5(b) because such person is serving as
a representative of another party who prohibits its representatives from
accepting options and later ceases to serve in a representative capacity and
begins to serve in an individual capacity, will be granted an option on the date
that such person begins to serve in an individual capacity for that number of
shares equal to the greater of (a) 17,000 or (b) the difference between 68,000
and the number of option shares already granted to such director by the Company
at any time in the past, if any; and
(d) In each year after 1994, each Eligible Director who does not
receive a grant during the year pursuant to Section 5(b) or Section 5(c) will be
granted an option on the date of the Annual Meeting for 17,000 shares; provided
that such director remains an Eligible Director on such date.
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6. OPTION AGREEMENTS
All Options granted pursuant to the Plan shall be evidenced by written
agreements ("Option Agreements"), to be executed by the Company and by the
Optionee, in such form or forms as the Board of Directors of the Company (the
"Board") shall from time to time determine. All such Option Agreements shall
comply with all terms of the Plan.
7. OPTION PRICE
The purchase price of each share of the Stock subject to an Option (the
"Option Price") shall be the greater of par value or 100% of the fair market
value of a share of the Stock on the date the Option is granted, determined with
reference to the closing sales price (or the closing bid, if no sales were
reported) on any exchange or system on which the Company's common stock is
traded for the day of determination.
8. TERM AND EXERCISE OF OPTIONS
(a) Term. Each Option granted under the Plan shall terminate and all
rights to purchase shares thereunder shall cease upon the expiration of ten
years form the date such Option is granted.
(b) Option Period. Each Option granted under the Plan shall be
exercisable in installments cumulatively as to one fourth of the shares of Stock
subject to such Option on each anniversary of its date of grant, provided the
Optionee is a Director on each such anniversary. Notwithstanding any other
provision of the Plan, no Option granted to an Optionee under the Plan shall be
exercisable in whole or in part prior to the date the Plan is approved by the
shareholders of the Company as provided in Section 4 above.
(c) Method of Exercise. An Option that is exercisable hereunder may be
exercised by delivery to the Company on any business day, at its principal
office, of written notice of exercise, which notice
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shall specify the number of shares with respect to which the Option is being
exercised, and shall be accompanied by payment in full of the Option Price of
the shares for which the Option is being exercised. The minimum number of shares
of Stock with respect to which an Option may be exercised, in whole or in part,
at any time shall be the lesser of 66 shares or the maximum number of shares
available for purchase under the Option at the time of exercise. Payment of the
Option Price for the shares of Stock purchased pursuant to the exercise of an
Option shall be made either (i) in cash or in cash equivalents; (ii) through the
tender to the Company of shares of Stock, which shares shall be valued, for
purposes of determining the extent to which the Option Price has been paid
thereby, at their fair market value on the date of exercise; or (iii) by a
combination of the methods described in (i) and (ii). An attempt to exercise any
Option granted hereunder other than as set forth above shall be invalid and of
no force and effect. Promptly after the exercise of an Option and the payment in
full of the Option Price of the shares of Stock covered thereby, the individual
exercising the Option shall be entitled to the issuance of a Stock certificate
or certificates evidencing his ownership of such shares. An individual holding
or exercising an Option shall have none of the rights of a shareholder until the
shares of Stock covered thereby are fully paid and issued to him or her and,
except as provided in Section 14 below, no adjustment shall be made for
dividends or other rights for which the record date is prior to the date of such
issuance.
9. TRANSFERABILITY OF OPTIONS
During the lifetime of an Optionee to whom an Option is granted, only
such Optionee (or, in the event of legal incapacity or incompetency, the
Optionee's guardian or legal representative) may exercise the Option. No Option
shall be assignable or transferable by the Optionee to whom it is granted, other
than by will or the laws of descent and distribution.
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10. TERMINATION OF SERVICE, DEATH OR DISABILITY
Any Option granted under the Plan shall terminate upon the earlier of
(i) the expiration of the Option under Section 8(a) above or (ii) one year after
the Optionee's termination of service as a director for any reason.
11. USE OF PROCEEDS
The proceeds received by the Company from the sale of Stock pursuant to
Options granted under the Plan shall constitute general funds of the Company.
12. REQUIREMENTS OF LAW
The Company shall not be required to sell or issue any shares of Stock
under any Option if the sale or issuance of such shares would constitute a
violation by the individual exercising the Option or the Company of any
provisions of any law or regulation of any governmental authority, including
without limitation any federal or state securities laws or regulations.
Specifically in connect with the Securities Act of 1933 (as now in effect or as
hereafter amended), upon exercise of any Option, unless a registration statement
under such Act is in effect with respect to the shares of Stock covered by such
Option, the Company shall not be required to sell or issue such shares unless
the Board has received evidence satisfactory to it that the holder of such
Option may acquire such shares pursuant to an exemption from registration under
such Act. Any determination in this connection by the Board shall be final,
binding, and conclusive. The Company may, but shall in no event be obligated to,
register any securities covered hereby pursuant to the Securities Act of 1933
(as now in effect or as hereafter amended). The Company shall not be obligated
to take any affirmative action in order to cause the exercise of an Option or
the issuance of shares pursuant thereto to comply with any law or regulation of
any governmental authority. As to any jurisdiction that expressly imposes the
requirement that an Option shall not be exercisable
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unless and until the shares of Stock covered by such Option are registered or
are subject to an available exemption from registration, the exercise of such
Option (under circumstances in which the laws of such jurisdiction apply) shall
be deemed conditioned upon the effectiveness of such registration or the
availability of such an exemption.
13. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend or
terminate the Plan as to any shares of Stock as to which Options have not been
granted; provided, however, that no amendment by the Board shall, without
approval by a majority of the votes cast at a duly held meeting of the
shareholders of the Company at which a quorum representing a majority of all
outstanding voting stock is, either in person or by proxy, present and voting on
the amendment, (a) materially modify the requirements as to eligibility to
receive Options; (b) materially increase the maximum number of shares of Stock
in the aggregate that may be sold pursuant to Options granted under the Plan
(except as permitted under Section 14 hereof); or (c) materially increase the
benefits accruing to eligible individuals under the Plan. Except as permitted
under Section 14 hereof, no amendment, suspension or termination of the Plan
shall, without the consent of the holder of the Option, alter or impair rights
or obligations under any Option theretofore granted under the Plan. The
provisions set forth in Sections 3, 5, 7 and 8 shall not be amended more than
once every six (6) months, other than to comport with changes in the Internal
Revenue Code of 1986, as amended, the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder.
14. EFFECT OF CHANGES IN CAPITALIZATION
(a) Changes in Stock. If the outstanding shares of Stock are increased
or decreased or changed into or exchanged for a different number or kind of
shares or other securities of the Company
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by reason of any recapitalization, reclassification, stock split-up, combination
of shares, exchange of shares, stock dividend or other distribution payable in
capital stock, or other increase or decrease in such shares effected without
receipt of consideration by the Company, occurring after the effective date of
the Plan, the number and kinds of shares for the purchase of which Options may
be granted under the Plan shall be adjusted proportionately and accordingly by
the Company. In addition, the number and kind of shares for which Options are
outstanding shall be adjusted proportionately and accordingly so that the
proportionate interest of the holder of the Option immediately prior to such
event. Any such adjustment in outstanding Options shall not change the aggregate
Option Price payable with respect to shares subject to the unexercised portion
of the Option outstanding but shall include a corresponding proportionate
adjustment in the Option Price per share.
(b) Reorganization in Which the Company Is the Surviving Corporation.
Subject to Subsection (c) hereof, if the Company shall be the surviving
corporation in any reorganization, merger, or consolidation of the Company with
one or more other corporations, any Option therefore granted pursuant to the
Plan shall pertain to and apply to the securities to which a holder of the
number of shares of Stock subject to such Option would have been entitled
immediately following such reorganization, merger, or consolidation, with a
corresponding proportionate adjustment of the Option Price per share so that the
aggregate Option Price thereafter shall be the same as the aggregate Option
Price of the shares remaining subject to the Option immediately prior to such
reorganization, merger, or consolidation.
(c) Reorganization in Which the Company Is Not the Surviving
Corporation or Sale of Assets or Stock. Upon the dissolution or liquidation of
the Company, or upon a merger, consolidation, or reorganization of the Company
with one or more other corporations in which the Company is not the surviving
corporation, or upon a sale of substantially all of the assets of the Company to
another
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corporation, or upon a sale of substantially all of the assets of the Company to
another corporation, or upon any transaction (including, without limitation, a
merger or reorganization in which the Company is the surviving corporation)
approved by the Board which results in any person or entity owning 80 percent or
more of the combined voting power of all classes of stock of the Company, the
Plan and all Options outstanding hereunder shall terminate, except to the extent
provision is made in writing in connection with such transaction for the
continuation of the Plan and/or the assumption of the Options theretofore
granted, or for the substitution for such Options of new options covering the
stock of a successor corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kinds of shares and exercise
prices, in which event the Plan and Options theretofore granted shall continue
in the manner and under the terms so provided. The Board shall send written
notice of an event that will result in such a termination to all individuals who
hold Options not later than the time at which the Company gives notice thereof
to its shareholders.
(d) Adjustments. Adjustments under this Section 14 relate to stock or
securities of the Company shall be made by the Board, whose determination in
that respect shall be final, binding, and conclusive. No fractional shares or
Stock or units of other securities shall be issued pursuant to any such
adjustment, and any fractions resulting from any such adjustment shall be
eliminated in each case by rounding downward to the nearest whole share or unit.
(e) No Limitations on Company. The grant of an Option pursuant to the
Plan shall not affect or limit in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure or to merge, consolidate, dissolve or liquidate, or to
sell or transfer all or any part of its business or assets.
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15. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or Option Agreement
entered into pursuant to the Plan shall be construed to confer upon any
individual the right to continue to serve on the Board, or to interfere in any
way with the right and authority of the Company or any subsidiary either to
increase or decrease the compensation of any individual at any time, or to
terminate any employment or other relationship between any individual and the
Company or any subsidiary.
16. NONEXCLUSIVITY OF THE PLAN
The adoption of the Plan shall not be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or individuals) as the Board in its discretion determines desirable,
including, without limitation, the granting of stock options or stock
appreciation rights otherwise than under the Plan.
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EXHIBIT 2
RATIONAL SOFTWARE CORPORATION
1994 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1994 Employee Stock
Purchase Plan of Rational Software Corporation.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Rational Software Corporation and any
Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
earnings, including commissions, but exclusive of payments for overtime, shift
premium, incentive compensation, incentive payments, bonuses, and other
compensation.
(f) "Designated Subsidiaries" shall mean the Subsidiaries
which have been designated by the Board from time to time in its sole discretion
as eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship will be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each
Offering Period.
(i) "Exercise Date" shall mean the last day of each Purchase
Period.
(j) "Fair Market Value" shall mean, as of any date, the value
of Common Stock determined as follows:
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(1) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sale price for the Common Stock (or the mean of the closing bid and
asked prices, if no sales were reported), as quoted on such exchange (or the
exchange with the greatest volume of trading in Common Stock) or system on the
date of such determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable, or;
(2) If the Common Stock is quoted on the NASDAQ
system (but not on the National Market System thereof) or is regularly quoted by
a recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(3) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board.
(k) "Offering Period" shall mean the period of approximately
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after November 1 and May
1 of each year and terminating on the last Trading Day in the periods ending
twenty-four months later. The duration and timing of Offering Periods may be
changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Purchase Period" shall mean the approximately six-month
period commencing after one Exercise Date and ending with the next Exercise
Date, except that the first Purchase Period of any Offering Period shall
commence on the Enrollment Date and end with the next Exercise Date.
(o) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock
exchanges and the National Association of Securities Dealers Automated Quotation
(NASDAQ) System are open for trading.
3. Eligibility.
(a) Any Employee (as defined in Section 2(g)), who shall be
employed by the Company on a given Enrollment Date shall be eligible to
participate in the Plan.
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(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) if,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) which permits his or her rights to purchase stock under
all employee stock purchase plans of the Company and its subsidiaries to accrue
at a rate which exceeds twenty-five thousand dollars ($25,000) worth of stock
(determined at the fair market value of the shares at the time such option is
granted) for each calendar year in which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after November 1 and May 1 each year, or on such other date as
the Board shall determine, and continuing thereafter until terminated in
accordance with Section 19 hereof. The Board shall have the power to change the
duration of Offering Periods (including the commencement dates thereof) with
respect to future offerings without shareholder approval if such change is
announced at least five (5) days prior to the scheduled beginning of the first
Offering Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan
by completing a subscription agreement authorizing payroll deductions in the
form of Exhibit A to this Plan and filing it with the Company's stock plan
administrator prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period, and the aggregate of such payroll deductions during the Offering Period
shall not exceed ten percent (10%) of the participant's Compensation during said
Offering Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and will be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in
the Plan as provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by completing or
filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
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<PAGE> 4
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to 0% at such time during any
Purchase Period which is scheduled to end during the current calendar year (the
"Current Purchase Period") that the aggregate of all payroll deductions which
were previously used to purchase stock under the Plan in a prior Purchase Period
which ended during that calendar year plus all payroll deductions accumulated
with respect to the Current Purchase Period equal $21,250. Payroll deductions
shall recommence at the rate provided in such participant's subscription
agreement at the beginning of the first Purchase Period which is scheduled to
end in the following calendar year, unless terminated by the participant as
provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part,
or at the time some or all of the Company's Common Stock issued under the Plan
is disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but will not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than a
number of Shares determined by dividing $12,500 by the Fair Market Value of a
share of the Company's Common Stock on the Enrollment Date, and provided further
that such purchase shall be subject to the limitations set forth in Sections
3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section 10 hereof, and
shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares will
be exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares will be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account will be paid to such participant
promptly after receipt of notice of withdrawal and such participant's
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<PAGE> 5
option for the Offering Period will be automatically terminated, and no further
payroll deductions for the purchase of shares will be made for such Offering
Period. If a participant withdraws from an Offering Period, payroll deductions
will not resume at the beginning of the succeeding Offering Period unless the
participant delivers to the Company a new subscription agreement.
(b) Upon a participant's ceasing to be an Employee (as defined
in Section 2(g) hereof), for any reason, he or she will be deemed to have
elected to withdraw from the Plan and the payroll deductions credited to such
participant's account during the Offering Period but not yet used to exercise
the option will be returned to such participant or, in the case of his or her
death, to the person or persons entitled thereto under Section 14 hereof, and
such participant's option will be automatically terminated. The preceding
sentence notwithstanding, a participant who receives payment in lieu of notice
of termination of employment shall be treated as continuing to be an Employee
for the participant's customary number of hours per week of employment during
the period in which the participant is subject to such payment in lieu of
notice.
11. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
12. Stock.
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be one million two
hundred thousand (1,200,000) shares, subject to adjustment upon changes in
capitalization of the Company as provided in Section 18 hereof. If, on a given
Exercise Date, the number of shares with respect to which options are to be
exercised exceeds the number of shares then available under the Plan, the
Company shall make a pro rata allocation of the shares remaining available for
purchase in as uniform a manner as shall be practicable and as it shall
determine to be equitable.
(b) The participant will have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan
will be registered in the name of the participant or in the name of the
participant and his or her spouse.
13. Administration.
(a) Administrative Body. The Plan shall be administered by the
Board or a committee of members of the Board appointed by the Board. The Board
or its committee shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Plan. Every finding,
decision and determination made by the Board or its committee shall, to the full
extent permitted by law, be final and binding upon all parties.
(b) Rule 16b-3 Limitations. Notwithstanding the provisions of
Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor provision ("Rule 16b-3") provides specific requirements for the
administrators of plans of this type, the Plan shall be only administered by
such a body and in such a manner as shall comply with the applicable
requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion
concerning decisions regarding the Plan shall be afforded to any committee or
person that is not "disinterested" as that term is used in Rule 16b-3.
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<PAGE> 6
14. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's under the Plan in the event of such participant's death prior
to exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse dependent or relative is known to
the Company, then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
16. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to participating
Employees at least annually, which statements will set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the Reserves as well as the price per share
of Common Stock covered by each option under the Plan which has not yet been
exercised shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration". Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option.
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<PAGE> 7
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Periods will terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each option under the Plan shall be
assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
Board determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, to shorten the Offering Periods then in progress by
setting a new Exercise Date (the "New Exercise Date"). If the Board shortens the
Offering Periods then in progress in lieu of assumption or substitution in the
event of a merger or sale of assets, the Board shall notify each participant in
writing, at least ten (10) business days prior to the New Exercise Date, the
Exercise Date for his option has been changed to the New Exercise Date and that
his option will be exercised automatically on the New Exercise Date, unless
prior to such date he has withdrawn from the Offering Period as provided in
Section 10 hereof. For purposes of this paragraph, an option granted under the
Plan shall be deemed to be assumed if, following the sale of assets or merger,
the option confers the right to purchase, for each share of option stock subject
to the option immediately prior to the sale of assets or merger, the
consideration (whether stock, cash or other securities or property) received in
the sale of assets or merger by holders of Common Stock for each share of Common
Stock held on the effective date of the transaction (and if such holders were
offered a choice or consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares of Common Stock); provided,
however, that if such consideration received in the sale of assets or merger was
not solely common stock of the successor corporation or its parent (as defined
in Section 424(e) of the Code), the Board may, with the consent of the successor
corporation, provide for the consideration to be received upon exercise of the
option to be solely common stock of the successor corporation or its parent
equal in fair market value to the per share consideration received by holders of
Common Stock and the sale of assets or merger.
19. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and
for any reason terminate or amend the Plan. Except as provided in Section 18
hereof, no such termination can affect options previously granted, provided that
an Offering Period may be terminated by the Board of Directors on any Exercise
Date if the Board determines that the termination of the Plan is in the best
interests of the Company and its shareholders. Except as provided in Section 18
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Rule 16b-3 or under Section 423 of the Code (or any successor rule
or provision or any other applicable law or regulation), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether
any participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
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<PAGE> 8
20. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 19 hereof.
23. Automatic Transfer to Low Price Offering Period. To the extent
permitted by Rule 16b-3 of the Exchange Act, if the Fair Market Value of the
Common Stock on any Exercise Date in an Offering Period is lower than the Fair
Market Value of the Common Stock on the Enrollment Date of such Offering Period,
then all participants in such Offering Period shall be automatically withdrawn
from such Offering Period immediately after the exercise of their option on such
Exercise Date and automatically re-enrolled in the immediately following
Offering Period as of the first day thereof.
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<PAGE> 1
EXHIBIT 3
RATIONAL SOFTWARE CORPORATION
1994 STOCK OPTION PLAN
<PAGE> 2
RATIONAL SOFTWARE CORPORATION
1994 STOCK OPTION PLAN
Rational Software Corporation (the "Corporation") sets forth herein the
terms of this 1994 Stock Option Plan (the "Plan") as follows:
1. PURPOSE
The Plan is intended to advance the interests of the
Corporation by providing eligible individuals (as designated pursuant to Section
4 below) with an opportunity to acquire or increase a proprietary interest in
the Corporation, which thereby will create a stronger incentive to expend
maximum effort for the growth and success of the Corporation and its
subsidiaries, and will encourage such eligible individuals to remain in the
employ or service of the Corporation or that of one or more of its subsidiaries.
Each stock option granted under the Plan (an "Option") is intended to be an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, or the corresponding provision of any subsequently-enacted
tax statute, as amended from time to time (the "Code") ("Incentive Stock
Option"), except (i) to the extent that any such Option would exceed the
limitations set forth in Section 7 below and (ii) for Options specifically
designated at the time of grant as not being "incentive stock options."
2. ADMINISTRATION
(a) Board. The Plan shall be administered by the Board of
Directors of the Corporation (the "Board"), which shall have the full power and
authority to take all actions, and to make all determinations required or
provided for under the Plan or any Option granted or Option Agreement (as
defined in Section 8 below) entered into hereunder and all such other actions
and determinations not inconsistent with the specific terms and provisions of
the Plan deemed by the Board to be necessary or appropriate to the
administration of the Plan or any Option granted or Option Agreement entered
into hereunder. All such actions and determinations shall be by the affirmative
vote of a majority of the members of the Board present at a meeting at which any
issue relating to the Plan is properly raised for consideration or without a
meeting by written consent of the Board executed in accordance with the
Corporation's Certificate of Incorporation and By-Laws, and with applicable law.
The interpretation and construction by the Board of any provision of the Plan or
of any Option granted or Option Agreement entered into hereunder shall be final
and conclusive.
(b) Committee. The Board may from time to time appoint a
Committee (the "Committee") consisting of not less than two members of the
Board, none of whom shall be an officer or other salaried employee of the
Corporation or any of its subsidiaries, and each of whom shall qualify in all
respects as a "disinterested person" as defined in Rule 16b-3 of the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). The Board may designate the Compensation Committee of the
Board to serve as the Committee hereunder. The Board, in its sole discretion,
may provide that the role of the Committee shall be limited to making
recommendations to the Board concerning any determinations to be made
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<PAGE> 3
and actions to be taken by the Board pursuant to or with respect to the Plan, or
the Board may delegate to the Committee such powers and authorities related to
the administration of the Plan, as set forth in Section 2(a) above, as the Board
shall determine, consistent with the Certificate of Incorporation and By-Laws of
the Corporation and applicable law. The Board may remove members, add members,
and fill vacancies on the Committee from time to time, all in accordance with
the Corporation's Certificate of Incorporation and By-Laws, and with applicable
law. The majority vote of the Committee, or acts reduced to or approved in
writing by a majority of the members of the Committee, shall be the valid acts
of the Committee.
(c) No Liability. No member of the Board or of the Committee
shall be liable for any action or determination made in good faith with respect
to the Plan or any Option granted or Option Agreement entered into hereunder.
(d) Delegation to the Committee. In the event that the Plan or
any Option granted or Option Agreement entered into hereunder provides for any
action to be taken by or determination to be made by the Board, such action may
be taken by or such determination may be made by the Committee if the power and
authority to do so has been delegated to the Committee by the Board as provided
for in Section 2(b) above. Unless otherwise expressly determined by the Board,
any such action or determination by the Committee shall be final and conclusive.
(e) Action by the Board. The Board may act under the Plan with
respect to any Option granted to or Option Agreement entered into with an
officer, director or shareholder of the Corporation who is subject to Section 16
of the Exchange Act other than by, or in accordance with the recommendations of,
the Committee, constituted as set forth in Section 2(b) above, only if all of
the members of the Board are "disinterested persons" as defined in Rule 16b-3 of
the Securities and Exchange Commission under the Exchange Act.
3. STOCK
The stock that may be issued pursuant to Options granted under
the Plan shall be shares of Common Stock, par value $.01 per share, of the
Corporation (the "Stock"), which shares may be treasury shares or authorized but
unissued shares. The number of shares of Stock that may be issued pursuant to
Options granted under the Plan shall not exceed in the aggregate 5,000,000
shares. The numbers of shares specified in this Section and elsewhere in the
Plan are subject to adjustment as provided in Section 17 below. If any Option
expires, terminates, or is terminated or canceled for any reason prior to
exercise in full, the shares of Stock that were subject to the unexercised
portion of such Option shall be available for future Options granted under the
Plan.
4. ELIGIBILITY
Options may be granted under the Plan to any employee of the
Corporation or any "subsidiary corporation" of the Corporation (a "Subsidiary")
thereof within the meaning of Section 424(f) of the Code (including any such
employee who is an officer or director of the Corporation or any Subsidiary) as
the Board shall determine and designate from time to time prior to
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<PAGE> 4
expiration or termination of the Plan. The maximum number of shares of Stock
subject to Options that may be granted under the Plan to any executive officer
or other employee of the Corporation or any Subsidiary is 200,000 shares in any
calendar year (subject to adjustment as provided in Section 17 hereof).
An individual may hold more than one Option, subject to such
restrictions as are provided herein.
5. EFFECTIVE DATE AND TERM OF THE PLAN
(a) Effective Date. The Plan shall be effective as of the date
of adoption by the Board, which date is set forth below (the "Effective Date"),
subject to approval of the Plan within one year of the Effective Date by a
majority of the outstanding shares of the Corporation's voting stock; provided,
however, that upon approval of the Plan by the shareholders of the Corporation
as set forth above, all Options granted under the Plan on or after the Effective
Date shall be fully effective as if the shareholders of the Corporation had
approved the Plan on the effective date. If the shareholders fail to approve the
Plan within one year of the Effective Date, any options and granted hereunder
shall be null and void and of no effect.
(b) Term. The Plan shall terminate on the date ten years from
the Effective Date.
6. GRANT OF OPTIONS
Subject to the terms and conditions of the Plan, the Board
may, at any time and from time to time, prior to the date of termination of the
Plan, grant to such eligible individuals as the Board may determine
("Optionees"), Options to purchase such number of shares of the Stock on such
terms and conditions as the Board may determine, including any terms or
conditions that may be necessary to qualify such Options as Incentive Stock
Options. The date on which the Board approves the grant of an Option (or such
later date as is specified by the Board) shall be considered the date on which
such Option is granted.
7. LIMITATION ON INCENTIVE STOCK OPTIONS
An Option (other than an Option described in exception (ii) of
Section 1) shall constitute an Incentive Stock Option to the extent that the
aggregate fair market value (determined at the time the option is granted) of
the Stock with respect to which Incentive Stock Options are exercisable for the
first time by any Optionee during any calendar year (under the Plan and all
other plans of the Optionee's employer corporation and its parent and subsidiary
corporations within the meaning of Section 422(d) of the Code) does not exceed
$100,000. This limitation shall be applied by taking Options into account in the
order in which they were granted.
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<PAGE> 5
8. OPTION AGREEMENTS
All Options granted pursuant to the Plan shall be evidenced by
written agreements ("Option Agreements"), to be executed by the Corporation and
by the Optionee, in such form or forms as the Board shall from time to time
determine. Option Agreements covering Options granted from time to time or at
the same time need not contain similar provisions; provided, however, that all
such Option Agreements shall comply with all terms of the Plan.
9. OPTION PRICE
The purchase price of each share of the Stock subject to an
Option (the "Option Price") shall be fixed by the Board and stated in each
Option Agreement, and shall be not less than the greater of par value or 100
percent of the fair market value of a share of the Stock on the date the Option
is granted (as determined in good faith by the Board); provided, however, that
in the event the Optionee would otherwise be ineligible to receive an Incentive
Stock Option by reason of the provisions of Sections 422(b)(6) and 424(d) of the
Code (relating to stock ownership of more than ten percent), the Option Price of
an Option that is intended to be an Incentive Stock Option shall be not less
than the greater of par value or 110 percent of the fair market value of a share
of Stock at the time such Option is granted. In the event that the Stock is
listed on an established national or regional stock exchange, is admitted to
quotation on the National Association of Securities Dealers Automated Quotation
System, or is publicly traded on an established securities market, in
determining the fair market value of the Stock, the Board shall use the closing
price of the Stock on such exchange or System or in such market (the highest
such closing price if there is more that one such exchange or market) on the
trading date immediately before the Option is granted (or, if there is no such
closing price, then the Board shall use the mean between the high and low prices
on such date), or, if no sale of the Stock had been made on such day, on the
next preceding day on which any such sale shall have been made.
10. TERM AND EXERCISE OF OPTIONS
(a) Term. Each Option granted under the Plan shall terminate
and all rights to purchase shares thereunder shall cease upon the expiration of
ten years from the date such Option is granted or on such date prior thereto as
may be fixed by the Board and stated in the Option Agreement relating to such
Option; provided, however, that in the event the Optionee would otherwise be
ineligible to receive an Incentive Stock Option by reason of the provisions of
Sections 422(b)(6) and 424(d) of the Code (relating to stock ownership of more
than ten percent), an Option granted to such Optionee that is intended to be an
Incentive Stock Option shall in no event be exercisable after the expiration of
five years from the date it is granted.
(b) Option Period and Limitations on Exercise. Each Option
shall be exercisable, in whole or in part, at any time and from time to time,
over a period commencing on or after the date of grant and ending upon the
expiration or termination of the Option, as the Board shall determine and set
forth in the Option Agreement relating to such Option. Without limiting the
foregoing, the Board, subject to the terms and conditions of the Plan, may in
its sole discretion
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<PAGE> 6
provide that an Option may not be exercised in whole or in part for any period
or periods of time during which such Option is outstanding; provided, however,
that any such limitation on the exercise of an Option contained in any Option
Agreement may be rescinded, modified or waived by the Board, in its sole
discretion, at any time and from time to time after the date of grant of such
Option, so as to accelerate the time at which the Option may be exercised.
Notwithstanding any other provision of the Plan, no Option granted to an
Optionee under the 'Plan shall be exercisable in whole or in part prior to the
date the Plan is approved by the shareholders of the Corporation as provided in
Section 5 above.
(c) Method of Exercise. An Option that is exercisable
hereunder may be exercised by delivery to the Corporation on any business day,
at its principal office, addressed to the attention of the Corporate Secretary,
of written notice of exercise, which notice shall specify the number of shares
with respect to which the Option is being exercised. The minimum number of
shares of Stock with respect to which an Option may be exercised, in whole or in
part, at any time shall be the lesser of 66 shares or the maximum number of
shares available for purchase under the Option at the time of exercise. Except
as provided in the next sentence, payment in full of the Option Price of the
shares for which the Option is being exercised shall accompany the written
notice of exercise of the Option and shall be made either (i) in cash or in cash
equivalents; (ii) through the tender to the Corporation of shares of Stock,
which shares shall be valued, for purposes of determining the extent to which
the Option Price has been paid thereby, at their fair market value (determined
in the manner described in Section 9 above) on the date of exercise; or (iii) by
a combination of the methods described in (i) and (ii); provided, however, that
the Board may in its discretion impose and set forth in the Option Agreement
such limitations or prohibitions on the use of shares of Stock to exercise
Options as it deems appropriate. Unless the Board shall provide otherwise in an
Option Agreement, payment in full of the Option Price need not accompany the
written notice of exercise provided such notice of exercise directs that the
Stock certificate or certificates for the shares for which the Option is
exercised be delivered to a licensed broker acceptable to the Corporation as the
agent for the individual exercising the Option and, at the time such Stock
certificate or certificates are delivered, the broker tenders to the Corporation
cash (or cash equivalents acceptable to the Corporation) equal to the Option
Price for the shares of Stock purchased pursuant to the exercise of the option
plus the amount (if any) of federal and other taxes which the Corporation may,
in its judgment, be required to withhold with respect to the exercise of the
Option. An attempt to exercise any Option granted hereunder other than as set
forth above shall be invalid and of no force and effect. Promptly after the
exercise of an Option and the payment in full of the Option Price of the shares
of Stock covered thereby, the individual exercising the Option shall be entitled
to the issuance of a Stock certificate or certificates evidencing his ownership
of such shares. A separate Stock certificate or certificates shall be issued for
any shares purchased pursuant to the exercise of an Option that is an Incentive
Stock Option, which certificate or certificates shall not include any shares
which were purchased pursuant to the exercise of an Option which is not an
Incentive Stock Option. An individual holding or exercising an Option shall have
none of the rights of a shareholder until the shares of Stock covered thereby
are fully paid and issued to him and, except as provided in Section 17 below, no
adjustment shall be made for dividends or other rights for which the record date
is prior to the date of such issuance.
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(d) Restrictions on Transfer of Stock. If an Option is
exercised prior to the date that is six months from the later of (i) the date of
grant of the Option or (ii) the date of shareholder approval of the Plan and the
individual exercising the Option is a reporting person under Section 16(a) of
the Exchange Act, then such certificate or certificates shall bear a legend
restricting the transfer of the Stock covered thereby until the expiration of
six months from the later of the dates specified in clauses (i) and (ii) above.
11. TRANSFERABILITY OF OPTIONS
During the lifetime of an Optionee to whom an Option is
granted, only such Optionee (or, in the event of legal incapacity or
incompetency, the Optionee's guardian or legal representative) may exercise the
Option. No Option shall be assignable or transferable by the Optionee to whom it
is granted, other than by will or the laws of descent and distribution.
12. TERMINATION OF SERVICE OR EMPLOYMENT
Upon the termination of the employment or service of an
Optionee with the Corporation or a Subsidiary, other than by reason of the
death, "permanent and total disability" (within the meaning of Section 22(e)(3)
of the Code), or "Retirement" (as defined in Section 13(B) below) of such
Optionee, any Option granted to an Optionee pursuant to the Plan shall
terminate, and such Optionee shall have no further right to purchase shares of
Stock pursuant to such Option; provided, however, that the Board may provide, by
inclusion of appropriate language in any Option Agreement, that the Optionee may
(subject to the general limitations on exercise set forth in Section 10(b)
above), in the event of termination of service or employment of the Optionee
with the Corporation or a Subsidiary, exercise an Option, in whole or in part,
at any time subsequent to such termination of service or employment and prior to
termination of the Option pursuant to Section 10(a) above, either subject to or
without regard to any installment limitation on exercise imposed pursuant to
Section 10(b) above. Whether a leave of absence or leave on military or
government service shall constitute a termination of service or employment for
purposes of the Plan shall be determined by the Board, which determination shall
be final and conclusive. For purposes of the Plan, a termination of employment
with the Corporation or a Subsidiary shall not be deemed to occur if the
Optionee is immediately thereafter employed with or in the service of the
Corporation or any Subsidiary.
13. RIGHTS IN THE EVENT OF DEATH, DISABILITY OR RETIREMENT
(a) Death. If an Optionee dies while in the employ or service
of the Corporation or a Subsidiary or within the period following the
termination of employment or service during which the Option is exercisable
under Section 12 above or Section 13(b) below, the executors or administrators
or legatees or distributees of such Optionee's estate shall have the right
(subject to the general limitations on exercise set forth in Section 10(b)
above), at any time within one year after the date of such Optionee's death and
prior to termination of the Option pursuant to Section 10(a) above, to exercise
any Option held by such Optionee at the date of such Optionee's death, whether
or not such Option was exercisable immediately prior to such Optionee's death;
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provided, however, that the Board may provide by inclusion of appropriate
language in any Option Agreement that, in the event of the death of the
Optionee, the executors or administrators or legatees or distributees of such
Optionee's estate may exercise an Option (subject to the general limitations on
exercise set forth in Section 10(b) above), in whole or in part, at any time
subsequent to such Optionee's death and prior to termination of the Option
pursuant to Section 10(a) above, either subject to or without regard to any
installment limitation on exercise imposed pursuant to Section 10(b) above.
(b) Disability or Retirement. If an Optionee terminates
employment or service with the Corporation or a Subsidiary by reason of (i) the
"permanent and total disability" within the meaning of Section 22(e)(3) of the
Code ("Disability") of such Optionee or (ii) retirement of the Optionee under an
approved plan of retirement of the Corporation or a Subsidiary, entitling such
Optionee to receive payment of retirement benefits thereunder immediately
("Retirement"), then such Optionee shall have the right (subject to the general
limitations on exercise set forth in Section 10(b) above), at any time within
three months after such termination of service or employment and prior to
termination of the Option pursuant to Section 10(a) above, to exercise, in whole
or in part, any Option held by such Optionee at the date of such termination of
service or employment, whether or not such Option was exercisable immediately
prior to such termination of service or employment; provided, however, that the
Board may provide, by inclusion of appropriate language in any Option Agreement,
that the Optionee may (subject to the general limitations on exercise set forth
in Section 10(b) above), in the event of the termination of service or
employment of the Optionee with the Corporation or a Subsidiary by reason of the
Disability or Retirement of such Optionee, exercise an Option in whole or in
part, at any time subsequent to such termination of service or employment and
prior to termination of the Option pursuant to Section 10(a) above, either
subject to or without regard to any installment limitation on exercise imposed
pursuant to Section 10(b) above. Whether a termination of service or employment
is to be considered by reason of Disability or Retirement for purposes of this
Plan shall be determined by the Board, which determination shall be final and
conclusive.
14. USE OF PROCEEDS
The proceeds received by the Corporation from the sale of
Stock pursuant to Options granted under the Plan shall constitute general funds
of the Corporation.
15. REQUIREMENTS OF LAW
(a) Violations of Law. The Corporation shall not be required
to sell or issue any shares of Stock under any Option if the sale or issuance of
such shares would constitute a violation by the individual exercising the Option
or the Corporation of any provisions of any law or regulation of any
governmental authority, including without limitation any federal or state
securities laws or regulations. Specifically in connection with the Securities
Act of 1933 (as now in effect or as hereafter amended, the "Act"), upon exercise
of any Option, unless a registration statement under the Act is in effect with
respect to the shares of Stock covered by such Option, the Corporation shall not
be required to sell or issue such shares unless the Board has received
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evidence satisfactory to it that the holder of such Option may acquire such
shares pursuant to an exemption from registration under the Act. Any
determination in this connection by the Board shall be final, binding, and
conclusive. The Corporation may, but shall in no event be obligated to, register
any securities covered hereby pursuant to the Act. The Corporation shall not be
obligated to take any affirmative action in order to cause the exercise of an
Option or the issuance of shares of stock pursuant thereto to comply with any
law or regulation of any governmental authority. As to any jurisdiction that
expressly imposes the requirement that an Option shall not be exercisable unless
and until the shares of Stock covered by such Option are registered or are
subject to an available exemption from registration, the exercise of such Option
(under circumstances in which the laws of such jurisdiction apply) shall be
deemed conditioned upon the effectiveness of such registration or the
availability of such an exemption.
(b) Compliance with Rule 16b-3. The intent of this Plan is to
qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the
extent any provision of the Plan does not comply with the requirements of Rule
16b-3, it shall be deemed inoperative to the extent permitted by law and deemed
advisable by the Board and shall not affect the validity of the Plan. In the
event Rule 16b-3 is revised or replaced, the Board, or the Committee acting on
behalf of the Board, may exercise discretion to modify this Plan in any respect
necessary to satisfy the requirements of the revised exemption or its
replacement.
16. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend,
suspend or terminate the Plan as to any shares of Stock as to which Options have
not been granted; provided, however, that no amendment by the Board shall,
without approval by a majority of the votes present and entitled to vote at a
duly held meeting of the shareholders of the Corporation at which a quorum
representing a majority of all outstanding voting stock is, either in person or
by proxy, present and voting on the amendment, or by written consent in
accordance with applicable state law and the Certificate of Incorporation and
By-Laws of the Corporation, materially increase the benefits accruing to
participants under the Plan, change the requirements as to eligibility to
receive Options or increase the maximum number of shares of Stock in the
aggregate that may be sold pursuant to Options granted under the Plan (except as
permitted under Section 17 hereof. Except as permitted under Section 17 hereof,
no amendment, suspension or termination of the Plan shall, without the consent
of the holder of the Option, alter or impair rights or obligations under any
Option theretofore granted under the Plan.
17. EFFECT OF CHANGES IN CAPITALIZATION
(a) Changes in Stock. If the outstanding shares of Stock are
increased or decreased or changed into or exchanged for a different number or
kind of shares or other securities of the Corporation by reason of any
recapitalization, reclassification, stock split, reverse split, combination of
shares, exchange of shares, stock dividend or other distribution payable in
capital stock, or other increase or decrease in such shares effected without
receipt of consideration by the Corporation, occurring after the Effective Date,
the number and kinds of shares for the purchase of
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which Options may be granted under the Plan shall be adjusted proportionately
and accordingly by the Corporation. In addition, the number and kind of shares
for which Options are outstanding shall be adjusted proportionately and
accordingly so that the proportionate interest of the holder of the Option
immediately following such event shall, to the extent practicable, be the same
as immediately prior to such event. Any such adjustment in outstanding Options
shall not change the aggregate Option Price payable with respect to shares
subject to the unexercised portion of the Option outstanding but shall include a
corresponding proportionate adjustment in the Option Price per share.
(b) Reorganization in Which the Corporation Is the Surviving
Corporation. Subject to Subsection (c) hereof, if the Corporation shall be the
surviving corporation in any reorganization, merger, or consolidation of the
Corporation with one or more other corporations, any Option theretofore granted
pursuant to the Plan shall pertain to and apply to the securities to which a
holder of the number of shares of Stock subject to such Option would have been
entitled immediately following such reorganization, merger, or consolidation,
with a corresponding proportionate adjustment of the Option Price per share so
that the aggregate Option Price thereafter shall be the same as the aggregate
Option Price of the shares remaining subject to the Option immediately prior to
such reorganization, merger, or consolidation.
(c) Reorganization in Which the Corporation Is Not the
Surviving Corporation or Sale of Assets or Stock. Upon the dissolution or
liquidation of the Corporation, or upon a merger, consolidation, reorganization
or other business combination of the Corporation with one or more other entities
in which the Corporation is not the surviving entity, or upon a sale of all or
substantially all of the assets of the Corporation to another entity, or upon
any transaction (including, without limitation, a merger or reorganization in
which the Corporation is the surviving corporation) approved by the Board which
results in any person or entity (or persons or entities acting as a group or
otherwise in concert) owning 50 percent or more of the combined voting power of
all classes of stock of the Corporation, the Plan and all Options outstanding
hereunder shall terminate, except to the extent provision is made in writing in
connection with such transaction for the continuation of the Plan and/or the
assumption of the Options theretofore granted, or for the substitution for such
Options of new options covering the stock of a successor entity, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kinds of
shares and exercise prices, in which event the Plan and Options theretofore
granted shall continue in the manner and under the terms so provided. In the
event of any such termination of the Plan, each individual holding an Option
shall have the right (subject to the general limitations on exercise set forth
in Section 10(b) above and except as otherwise specifically provided in the
Option Agreement relating to such Option), immediately prior to the occurrence
of such termination and during such period occurring prior to such termination
as the Board in its sole discretion shall determine and designate, to exercise
such Option in whole or in part, whether or not such Option was otherwise
exercisable at the time such termination occurs and without regard to any
installment limitation on exercise imposed pursuant to Section 10(b) above. The
Board shall send written notice of an event that will result in such a
termination to all individuals who hold Options not later than the time at which
the Corporation gives notice thereof to its shareholders.
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(d) Adjustments. Adjustments under this Section 17 related to
stock or securities of the Corporation shall be made by the Board, whose
determination in that respect shall be final, binding, and conclusive. No
fractional shares of Stock or units of other securities shall be issued pursuant
to any such adjustment, and any fractions resulting from any such adjustment
shall be eliminated in each case by rounding downward to the nearest whole share
or unit.
(e) No Limitations on Corporation. The grant of an Option
pursuant to the Plan shall not affect or limit in any way the right or power of
the Corporation to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge, consolidate, dissolve
or liquidate, or to sell or transfer all or any part of its business or assets.
18. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or Option
Agreement entered into pursuant to the Plan shall be construed to confer upon
any individual the right to remain in the employ or service of the Corporation
or any Subsidiary, or to interfere in any way with the right and authority of
the Corporation or any Subsidiary either to increase or decrease the
compensation of any individual at any time, or to terminate any employment or
other relationship between any individual and the Corporation or any Subsidiary.
19. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the
Plan to the shareholders of the Corporation for approval shall be construed as
creating any limitations upon the right and authority of the Board to adopt such
other incentive compensation arrangements (which arrangements may be applicable
either generally to a class or classes of individuals or specifically to a
particular individual or individuals) as the Board in its discretion determines
desirable, including, without limitation, the granting of stock options or stock
appreciation rights otherwise than under the Plan.
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